The Definitive Silver ETF Guide: Silver ETF Investing 101

by on November 12, 2009 | Updated November 1, 2012 | ETFs Mentioned:

While most investors are well aware of gold’s unprecedented march to $1,900/oz., far fewer are familiar with the yellow metal’s often overlooked cousin, silver. Although silver has flown under the radar, many investors consider the metal to be a sound investment due to robust industrial demand, its traditional role as a store of value, and its current ratio compared to gold. These three factors will help to ensure that despite silver’s volatility, there will always be demand for this “forgotten precious metal.”

In any case, silver ETFs are an efficient way to invest in the metal without dealing with the associated “headaches” of holding a physical amount of silver in your possession. Below is a guide to silver ETF options for investors looking for precious metal exposure that goes beyond gold. [For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro].

How a Silver ETF Works

Silver ETFs can either directly hold silver bullion (the iShares Silver Trust – SLV – does this), or invest in dSilver Coinerivatives that track the price of silver (for instance, the PowerShares DB Silver Fund – DBS -  holds futures contracts). Both types of ETFs will move with the price of silver, and similar types of silver ETFs usually have similar expense ratios.

Ticker ETF Exposure Expense Ratio
SLV Silver Trust Physical 0.50%
SIVR Physical Silver Shares Physical 0.30%
DBS DB Silver Fund Futures 0.50%
USV E-TRACS UBS Bloomberg CMCI Silver ETN Futures 0.40%
  • SLV: The most popular silver fund, SLV holds physical bullion for its investors. The fund has billions in assets and trades millions of times every day.
  • SIVR: This fund aims to compete with SLV by also offering exposure to physical bullion, but at 20 basis points less. Note that SIVR is not nearly as popular as SLV despite its cheaper exposure.
  • DBS: This fund utilizes front-month futures contracts to maintain exposure to silver
  • USV: The sole ETN on the list has had a hard time gathering assets with its futures-based strategy, as many have turned to physical holdings instead.

Precious Metals ETFs

Aside from those that specifically focus their assets on silver, there are ETFs that offer a more broad exposure to those looking for a more diversified play [see Free Report: Everything You Need To Know About Commodity ETFs]

Ticker ETF % Silver*
DBP DB Precious Metals Fund 21.88%
GLTR Physical Precious Metal Basket Shares 38.90%
JJP Dow Jones-UBS Precious Metals Total Return Sub-Index ETN 28.06%
WITE Physical White Metal Basket Shares 61.78%
*As of 4/25/2012

“Indirect” Silver ETFs

For investors who are uneasy about investing directly in commodities (or futures contracts on commodities), there are ways to gain exposure to silver prices while sticking to equities. Mining and exploration companies can make for an enticing play on silver, as they maintain heavy ties to the metal, while still offering an equity ticker to invest in.

Investors should note that these companies and related ETFs typically have high betas, making something of a leveraged play on the underlying metal. It should also be noted that the equity funds do not always trade in line with silver prices, as they have a very different set of price drivers that can sometimes have nothing to do with the commodity (i.e. rising fuel costs for transporting the commodity).

Ticker ETF Expense Ratio Inception Date
SIL Silver Miners ETF 0.65% 04/19/2010
SLVP MSCI Global Silver Miners Fund 0.39% 01/31/2012
PSAU Global Gold and Precious Metals Portfolio 0.75% 09/18/2008
HAP Market Vectors Hard Assets Producers ETF 0.49% 08/29/2008
GRES IQ Global Resources ETF 0.75% 10/27/2009
EMT Dow Jones Emerging Markets Metals & Mining Titans Index Fund 0.85% 05/21/2009

Leveraged And Inverse Silver Exposure

The options for investing in silver through ETFs don’t stop with “plain vanilla” long funds. Speculators with strong opinions on short-term price movements of the “white metal” can utilize leveraged or inverse products to make a bet on the future of silver. Note that these funds can often be quite dangerous, so close monitoring and stop-loss orders are a must.

Ticker ETF Inverse? Leverage
AGQ Ultra Silver No 200%
ZSL UltraShort Silver Yes -200%
USLV 3x Long Silver ETN No 300%
DSLV 3x Inverse Silver ETN Yes -300%

Industrial Demand

Silver has a wide variety of industrial uses, effectively establishing a floor for demand (something that gold lacks). Over 40% of all silver is used for industrial purposes, including uses in photography, batteries and CDs, and Plasma TVs. Silver is also fast becoming a critical component of emerging technologies that will undoubtedly be critical to life in the 21st century. Silver plays a crucial role in solar technology, finding its way into 90% of all crystalline silicon photovoltaic cells, as well as silver embedded bandages and water purification devices. Due to the extreme diversity of the applications for silver, it should be one of the metals least affected by a continued industrial slump. Since gold is primarily used for electronics, copper for housing and construction materials, and platinum with automobiles, their prices are much more correlated to individual industries, while silver has a wide variety of uses that stretches across all facets of the economy.

ETFdb Pro members can gain more insights into the drivers of precious metals prices in our ETFdb Category Report (if you’re not a Pro member yet, you can sign up for a free trial or read more here).

Poor Man’s Gold

As the emerging economies of the world continue to lose faith in the U.S. dollar, investors are looking to buy assets that are not dependent on the full faith and credit of the United States government. While many emerging markets have historically considered Treasuries to be a store of value, that is no longer the case. As emerging economies get richer, both individual citizens and governments are looking to reallocate their reserve holdings hard currencies. With a price that is currently less than $20/oz., silver is a relatively cheap and easy way to diversify assets out of fiat money without having to deal with buying 1/10 of an ounce gold coins. As such, silver should remain a popular choice for global investors looking for a safe haven and store of value.

Gold to Silver Ratio

In the 1972 Currency Act, the U.S. set the gold/silver ratio at 1/15, meaning that one troy ounce of gold would buy 15 ounces of silver. While banknotes are no longer convertible into silver, this historical ratio has become extremely distorted in the 20th century hitting an average of 1/47 for the past century. If the ratio were to return to its 20th century mean and gold prices did not change from their current levels of $1,110 an oz., that would require silver prices to increase to almost $24/oz. If the ratio were to go to its geological ratio, silver would have to rise to an unfathomable $74/oz. While it’s unlikely that the price of silver will hit this mark anytime soon, the fundamentals are certainly in the metal’s favor for continued price appreciation going forward (for a complete guide on Gold ETFs, click here).

Too High Too Fast?

While the price of silver has gone up tremendously over the past year, the fact remains that it can be a volatile precious metal susceptible to large price swings in a short period of time. As presented in the chart below, investors in silver have been on a wild ride over the past three years. With prices crashing nearly 50% from their highs in 2008, and then nearly rebounding all the way back to the 2008 highs, investors cannot assume that a similar situation will not happen again in the future. Should financial markets experience more upheaval in the future, and if investors lose even more faith in fiat currencies, expect silver to continue its roller coaster ride.

Further Reading on Silver ETFs

If you’re interested in silver ETFs, here’s some more advanced reading: